The Pattern of Twin Deficits in ASEAN: Granger Casuality Approach

Fariz Alwan, Lukman Hakim, Nugroho Saputro

Abstract

The study aimsxtoxexaminexthexexistencexofxtwinxdeficits phenomenon in ASEAN countries. This phenomenon exists because of government budget deficit and current account deficit occur simultaneously. According to the convetional view, when government budget deficit occurs the domestic interest rate will rise and eventually the exchange rate will appreciate. The appreciated exchange rate means the price of exported product will be higher relative to the price of imported product, and so the current account deficit will be worsen. While the Ricardian Equivalence view states that the rise in government budget deficit due to the tax cut, will not affect the position of current account deficit. This study using secondary data of current accountx(asxpercentagexof nominal GDP) and government budget (asxpercentagexof nominal GDP) with quarterly period of 2000-2018. The analysis of this study uses grangerxcausalityxto show the pattern of the twin deficits. Thexresultxofxthisxstudy shows that the causalityxruns fromxcurrentxaccount to government budget (currentxaccountxtargeting)  occurs in Indonesia, Laos, and Philippines. While the causality runs in both direction occurs in Singapore and Brunei. While Cambodia, Thailand, and Vietnam supportxthexRicardianxEquivalencexHypothesis. The twin deficits itself did not occur in the case of ASEAN countries during the time span 2000-2018.

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